lecture_final grading period statement of cashflows 3_4_2014.ppt
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PowerPoint Presentation by
Gail B. WrightProfessor of Accounting
Bryant University
Copyright 2007 Thomson South-Western, a part
of The Thomson Corporation. Thomson, the Star
Logo, and South-Western are trademarks usedherein under license.
FINANCIAL
ACCOUNTING
2ND
EDITION
BY
DUCHAC, REEVE, & WARREN
13 Statement of
Cash Flows
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CASH FLOW STATEMENT
3 sections reporting cash flows
from different activitiesCash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
LG 1
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CASH FLOWS: Operating Activities
Most important cash flows of a business
2 methods
Direct method
Reports operating cash flows as sources, uses ofcash
Indirect method
Reports operating cash by adjusting accrual netincome to cash flows
LG 1
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CASH FLOWS: Investing Activities
Cash inflowsfrom investing activities arise
from
Sellingfixed assets, investments, intangible
assets
Cash outflowsfrom investing activities
arise fromBuyingfixed assets, investments, intangible
assets
LG 1
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CASH FLOWS: Financing Activities
Cash inflowsfrom financing activities arise
from
I ssuing debt, equity securities
Cash outflowsfrom financing activities
arise from
(Re)Paying dividends, debt, purchasingtreasury stock
LG 1
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EXERCISE 13-3a
Press Enter or click left mouse button for answer.
Identify cash flow from operatingactivity.
1. Purchased patents
2. Purchased buildings
3. Purchased treasury stock
4. Sold equipment
5. Net income
6. Issued preferred stock
7. Redeemed bonds
8. Paid cash dividends
9. Sold long-term
investment
10. Issued common stock
11. Issued bonds
LG 1
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exercise
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EXERCISE 13-3b
Press Enter or click left mouse button for answer.
Identify cash flow from investingactivity.
1. Purchased patents
2. Purchased buildings
3. Purchased treasury stock
4. Sold equipment
5. Net income
6. Issued preferred stock
7. Redeemed bonds
8. Paid cash dividends
9. Sold long-term
investment
10. Issued common stock
11. Issued bonds
LG 1
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skip this
exercise
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EXERCISE 13-3c
Press Enter or click left mouse button for answer.
Identify cash flow from financing activity.
1. Purchased patents
2. Purchased buildings
3. Purchased treasury stock
4. Sold equipment
5. Net income
6. Issued preferred stock
7. Redeemed bonds
8. Paid cash dividends
9. Sold long-term
investment
10. Issued common stock
11. Issued bonds
LG 1
Clickbutton to
skip this
exercise
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NONCASH ACTIVITIES
Arise from investing, financing activities
Examples Issue stock to retire long-term debt
Issue stock, debt in exchange for fixed asset
Has no direct effect on cash flowsDisclosed in separate schedule
LG 1
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CASH FLOWS:Direct Method
Direct method
Reports operating cash flows as sources, usesof cash
Adjusts certain income statement items for
changes in current assets, liabilities
LG 3
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EXHIBIT 7
Continued
Rundell, Inc. current accounts used for Operating
cash flow under direct method
LG 3
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EXHIBIT 7
Rundell, Inc. income statement items used for
Operatingcash flow under direct method
LG 3
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DIRECT METHOD:
Cash Received from Customers
Sales adjusted for change accounts receivable
LG 3
G 3
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DIRECT METHOD:
Cash Paid for Inventory
Cost of inventory adjusted for changes in
inventory & accounts payable
LG 3
LG 3
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DIRECT METHOD:
Cash Paid for Operating Expenses
Operating expenses adjusted for changes in
accrued expenses
LG 3
LG 3
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DIRECT METHOD:
Cash Paid for Income Tax
Income tax expense adjusted for changes in
taxes payable
LG 3
LG 3
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EXHIBIT 8
LG 3
LG 4
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CASH CONVERSION CYCLE
Cash conversion cycle
Measures the cycle of Buying inventory
Paying for inventory (account payable)
Selling inventory
Collecting account receivable
LG 4
LG 4
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CASH CONVERSION CYCLE:
Equation
Days sales in A/R = A/R / Ave daily net Sales
+Days sales in inventory = Ave. Inv. / Ave CGM
-Days sales in A/P = Ave. A/P /Ave CGM
LG 4
LG 4
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CASH CONVERSION CYCLE:
Calculation
Apple Dell
# Days SalesReceivables 34 30
Inventory 5 4
Accounts Payable Conversion Cycle
?
LG 4
LG 4
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ANALYSIS: Cash Conversion Cycle
The more positive the conversion cycle, theless efficient the operations
Reduces amount of noncash current assetsIncreases level of current liabilities
Releases cash for other purposes
Negative cycles indicate highly efficient usenoncash working capital
LG 4
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Inspiration of the Day
"To do carefully and constantly and
kindly many little things is not a little
thing"- Author Unknown